Coal allocation case: Companies try to work out next course of action

Supreme Court may order for existing allocations to be cancelled and re-auction the coal blocks afresh.

Power and metal companies that will be affected by the Supreme Court’s observation on Monday, holding coal block allocations between 1993 and 2010 illegal, are waiting for a final verdict on September 1 before evaluating the impact on business operations.

Executives at some firms said on condition of anonymity that while the court had established that the process followed

by the government to allocate coal mines was illegal, it remained to be seen whether companies would be penalised.

Companies like aluminium maker Hindalco (part of the Aditya Birla Group), Tata Steel, Essar Power and JSW Steel declined to comment on the matter.

Going by precedence, it is a possibility that the Supreme Court may order for existing allocations to be cancelled and re-auction the coal blocks afresh. In February 2012, the apex court cancelled the allocation of 122 2G licences awarded to telecom operators by the erstwhile United Progressive Alliance government, as it found the process illegal.

But the outright de-allocation of coal blocks awarded to the likes of power firms will directly impact power generation capacity in the country and have a bearing on the overall economy. Consequently, the court may enforce some alternate punitive action.

“It was the government of the day that devised the eligibility criteria and the processes to be followed to apply for and secure coal blocks. We just followed rules laid down

by them,” said an executive at one of the companies whose coal block allocation is in jeopardy. “What did we do wrong?”

Vivek Vikram Singh, director at consulting firm Grant Thornton, said that metal companies will be hit badly if coal mines were to be eventually de-allocated. Production costs for some of them may rise by 30-40%, Singh said.

“Many firms that have completed their power, steel, cement projects depending on coal supply from captive mines will go to the government, asking for linkage from Coal India,” said Debasish Mishra, senior director at Deloitte Touche Tohmatsu India. “Given Coal India’s level of production, it will not be able to meet such requests immediately.”